General Electric Co. (NYSE: GE) is having a bad day. The stock traded down nearly 14% early Thursday following a report from whistleblower Harry Markopoulos, the guy who brought down Bernie Madoff and helped take down Enron and Worldcom. In a 170-page slide presentation attached to a six-page introduction, Markopoulos and his company, Forensic Decisions, accuse the once-mighty conglomerate of $38 billion in accounting fraud in GE’s long-term care (LTC) reinsurance business.

Markopoulos reveals that Forensic Decisions has partnered with a third party that received an advance copy of the report that was posted Thursday in exchange for “later-provided compensation” that is based on “a percentage of the profits resulting from the third-party entity’s positions in the securities, derivatives, and other financial instruments of, and/or relating to” GE. Forensic Decisions also has filed its report with the U.S. Securities and Exchange Commission’s (SEC’s) Whistleblower program and the U.S. Department of Justice’s FIRREA Whistleblower program. The company and its third-party entity have taken short positions in GE stock.

According to the Markopoulos report, his company determined that GE’s 2018 $15 billion hit to its reserves was just the tip of a large iceberg. The losses are expected to get bigger as remaining age cohorts insured by GE get older. Forensic Decisions noted, “We expect to soon see loss ratios of 750% to 1,000% or more on some of GE’s reinsurance agreements. According to industry data, approximately 86% of GE’s LTC claims are ahead of them and the accompanying losses are growing at an exponential and unsurvivable rate.”

A GE spokesperson denied the charges in an emailed statement to The Wall Street Journal:

GE stands behind its financials. We operate to the highest level of integrity in our financial reporting and we have clearly laid out our financial obligations in great detail. While we can’t comment on the detailed content of a report that we haven’t seen, the allegations we have heard are entirely false and misleading. … We will not be distracted by this type of meritless, misguided and self-serving speculation and neither should anyone in the investor community.”

According to Markopoulos, GE needs an infusion of $29 billion in new LTC reserves, $18.5 billion in cash “immediately” with the other $10.5 billion in a non-cash GAAP charge of $10.5 billion that must be taken by the first quarter of 2021.

Markopoulos and Forensic Decisions also claim that GE is hiding $9.1 billion in losses related to its 2017 acquisition of a 62.5% controlling interest in oil and gas driller Baker Hughes, a GE Company (NYSE: BHGE). They claim that GE’s secondary offering of about 101.2 million Baker Hughes shares in November of last year to maintain a current 50.4% stake was “a sham transaction with no business purpose done solely so that GE can create the false impression that GE has a reason to keep $9.1 billion in losses off of its books in 2018.”

GE also claimed $52 billion in Baker Hughes assets and $22 billion of the oil and gas company’s revenues in 2018. Baker Hughes claimed identical amounts that, according to Markopoulos, GE should not have claimed. By doing so, GE pumped up its cash flow from operations from “a meager $495 million” to a reported $2.257 billion. Backing out the Baker Hughes numbers gives GE a current ratio of just 0.67, which Markopoulos points out “is many things, but investment grade is not one of them.”

There will be many chapters to this story before it plays out. In the noon hour Thursday, GE shares traded down about 9%, at $8.22 in a 52-week range of $6.40 to $13.25. The stock’s 12-month consensus price target is $10.89.

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